I have long espoused the importance of outsourcing your payroll to a professional. For reference, here is an article from last year talking about how expensive payroll mistakes can be. These mistakes are very easy to make and can cost up to 25% of the original tax bill!
During the past couple of months I quoted several new clients on the cost of payroll services from my specialist (Jen Stevenson). I was surprised when they reported back that competitors came back with some rates that appeared to be significantly lower. Not only is Jen able to charge less because she has kept her overhead low, but we had done price comparisons and priced below them when she started her business.
So I asked Jen to do some investigating on these other services. How were these larger operations suddenly lower cost than her? As you will see below, it turns out they were not. All of them had some kind of surprise fees that were not included in the “cheap” price they quoted. Below is her summary of a few of the tricks that she uncovered:
Hidden Costs
One of the most common tricks I’ve found is companies quoting a price for payroll that does not include all of their fees. One company only charged $60 for processing the payroll (2 employees, monthly payroll in this example) – which sounds really cheap. A full $25 less than comparable quotes – savings of $300 a year, right? Wrong. This company charged $500 for the year end filings! Choosing them would actually cost a company an extra $200 a year.
But somehow none of that was reflected in their quote. This seems to be the single most common way for companies to deflate their sticker price. The PROCESSING is very cheap. But if you want all of the other necessary parts of payroll to be done – well, that will cost you extra.
- Need W-2s generated? Oh, that will be $20 per employee.
- Want monthly filings to be done? Another $25 each time.
- Quarterly reports and filings? Another $75.
- Annual reports and filings? Another $300.
They can also have price structures that get significantly more expensive as your company changes or the situation becomes slightly more complex. Some questions to ask:
- If your company grows and you add employees how much extra will that cost?
- Would there be an extra charge if you had to re-run a W-2 for an employee? Most big payroll companies charge up to $5-$10 just to run one duplicate W-2.
- What do they charge for additional payroll runs if you forget to pay an employee?
- If you need to add pre-tax or after tax deductions are there any extra fees in cutting checks?
- If employees receive garnishments and child support liens (which you as the employer have no control over) how much would that cost if you add that to the payroll mix?
- Some companies will start off with a large discount on your payroll. Does that ever expire? Does it stay in effect no matter how big your company grows? Ask what the limitations are.
Beware of these kinds of companies because they will nickel and dime you to death! Ask what their ALL-IN price is and if there are any other fees.
Not Everything is Done
Another strategy is for companies to quote a very low price, but they simply do not handle the majority of the work associated with payroll. They will gladly generate your paychecks and do withholding calculations. But that is it. They are not actually doing any of the monthly filings. They might generate a quarterly filing report, but it is up to you to print it out and send it in.
Since you are paying someone to do payroll, you rightfully think that everything is being handled. But a few months pass and all of a sudden you get notices from the IRS for unpaid taxes or filings never being received. And since these penalties can range from 2-25% of the tax owed, that is a pretty expensive misunderstanding.
Ask any potential payroll provider if their fee is for full service payroll.
SUTA/FUTA Never Being Capped
This next one I’ve only ever heard of one company doing but it is still worth noting. They never cut SUTA and FUTA withholding off. Wondering what I am talking about? EXACTLY! Many small business owners wouldn’t even know what those are. But it’s out there. BEWARE!
- SUTA is state unemployment tax. It is a tax that every company must pay on the first $8,000 of wages per year per employee.
- FUTA is the federal unemployment tax. Again this is a mandatory tax that must be paid by the employer on the first $7,000 of wages per employee per year
Once an employee’s wages hit the $7,000/8,000 caps the tax is no longer collected. But this company would continue collecting the tax for all of the employee wages and pocketing the difference as part of their fee. Not only is this dishonest and unethical, it is illegal. And yet they did it and likely few of their customers ever noticed. Why would they? FUTA/SUTA are payroll terms.
Always check your payroll reports! Any discrepancies? Ask questions! This is your business after all so don’t overlook these reports. I always encourage my clients to at least get an idea of what they are looking at.
They Hold No Responsibility
This one is not really a price trick so much as it is laziness. If your payroll wages pass certain thresholds, you could switch from a quarterly to a monthly filer or from monthly to semi-weekly filer. The payroll companies are aware of these thresholds. But unless you explicitly tell them to change your filing frequency, they will not do it. They will continue filing incorrectly and you will get hit with the penalties. And since you didn’t notify them, you are on the hook for everything.
I take it as my responsibility to do your payroll correctly and will do everything possible to make sure it is done right – with information you provide me and with information you do not.
Conclusion
I could go on and on but to keep it simple: when looking into outsourcing payroll or even keeping it in house make sure you are comparing EVERYTHING!
My services at Jen Stevenson Payroll are ALL INCLUSIVE. There are absolutely no hidden fees. If you have any questions or just want a simple quote contact me. You can take a look at my website for all my services at jenstevensonpayroll.com or email me at jenstevensonpayroll@outlook.com.
Thanks, Jen! As I’ve said time and time again – Jen offers the best service and at one of the best prices I’ve found. If a company quotes you a price that seems too low – something is probably wrong. Give one of us a shout so we can help you compare apples to apples.
Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
